Hybrid ERP Cloud Tales

The vast majority of enterprise resource planning (ERP) system instances are still deployed on premises for obvious historical reasons; however, a growing number of customers are becoming interested and demanding cloud deployments, for only brand new modules (“edge” functionality) or even the total system’s migration to the cloud. So, what are enterprise systems vendors supposed to do? SAP, for example, is now offering customers and partners a model to extend current on-premise solutions to cloud applications, including offerings from SAP companies Ariba and SuccessFactors as well as brand new cloud SAP solutions such as SAP Business ByDesign and SAP Cloud for Travel.

SAP recently announced its unified cloud portfolio vision and is now helping customers make their cloud journey. SAP’s customers can choose to reallocate elements of their installed on-premise solutions to cloud solutions from SAP, replacing the affected on-premise license and maintenance fee with a cloud subscription. The transaction assumes an expanded investment in SAP’s cloud solutions, given the substantial added value from this new hybrid deployment scenario.

It’s about Contractual Terms

SAP’s prepackaged Rapid Deployment Solutions (SAP RDS) for the SAP Cloud portfolio support the new cloud extension opportunity. Hybrid deployment scenarios can hereby be quickly implemented based on packaged content and implementation services in the areas of human resources (HR), procurement, and business collaboration, among others. Premium support offerings from SAP, including SAP MaxAttention and SAP ActiveEmbedded services, are also available to support customers in transitioning without disruption, allowing them to build and run SAP solutions like a factory (via a command center and dedicated support staff). Click here for more info on SAP’s premium offerings.

Market pundits such as Josh Greenbaum were pre-briefed by SAP on this announcement, and here is his video endorsement. We concur with Greenbaum that functionally and technically there is not much uniqueness here, per se, but the difference appears to be in addressing the contractual aspect of software ownership. There are not many formal vendor programs for shifting customers from on-premise to hybrid deployments, and SAP’s efforts in addressing this issue are commendable. SAP is trying to help alleviate some customers’ contractual “pain in the neck” grievances, regardless of any technological and business issues. We all have run into on-premise software customers who have tried to figure out how to break or modify their contracts usually after having started to look at a cloud or hybrid deployment opportunity. This program might help them at least understand what they have to do and start a dialogue early on about how the hybrid deployment will affect their contractual terms and conditions.

UNIT4 Begs to Differ

As SAP’s announcements often overshadow those of other lesser-known vendors, some innovative vendors and market observers appear to be struggling to understand what was truly new here. Could it really be that SAP only now announced that it is willing to negotiate the terms for a move from on-premise to the cloud, where part of the earlier investment in licenses would be deducted from the cloud fee? Bengt Höjer, director of UNIT4 Cloud Services, and others find it hard to believe that the company wasn’t previously prepared to negotiate such deals. He states:

“The reason why Mr. Greenbaum has never heard of UNIT4 Agresso ERP having a formal program for shifting customers from on-premise to hybrid or any other cloud deployment, is because no program is required—so there is nothing ‘new’ to announce! The action of moving UNIT4 Agresso ERP customers from one deployment option to another—whether it’s cloud to cloud, on premise to cloud (in any flavor—private or public, multitenant cloud) or however they wish to deploy—is a simple ‘freedom of choice’ action that is fast to do (under 2 hours in most cases). Our philosophy is that a customer who has unlimited ‘no program required choices’ is a happy customer, and one that is more likely to stay with us for a long time.

In fact, with the hundreds of customers on our clouds (private/hosted, hybrid, multitenant) since 1998, . . . only one has ever left us in my 6 years here, and that was the result of a merger where the larger company’s ERP vendor contract prevailed (likely the result of spending huge sums of money on another rigid ERP deployment, and moving off would feel like a failure). SAP’s whole announcement feels like similar desperation. And likely customers are going to be paying dearly for that SAP ‘program’ that is not even necessary with UNIT4 cloud deployments. With UNIT4, there is no contractual ‘pain in the neck’—there is no breaking or modifying contracts. This is a simple 2-hour-max change. Again, this all traces back to the unique data stores for each customer, and the uniqueness of the Agresso Vita ERP architectural capabilities.”

Moving existing on-premise installations of Agresso ERP to the cloud (and back if that's what the customer wants) within hours without any changes to the setup is something UNIT4 has (albeit quietly) offered and done for years. Depending on the number and complexity of the integrations it could be a few days (UNIT4 has customers with as many as about 100 pretty complex integrations). The vendor deducts the investment the customer has previously made in licensing from the monthly cloud fee. And, of course, this choice also includes migration to (and from) a multitenant public cloud, if necessary.

UNIT4 can boast about a number of game-changing multitenant cloud capabilities (see related TEC articles here and here):

Portability—comes from the previous capability. There have been stories about companies having had a really hard time getting their data out of popular public cloud solution providers. Without true portability (i.e., the ability to export your data at any time for any reason and move it elsewhere), isn’t it the worse version of vendor lock-in? Remember those days when we had to change a phone number every time we moved and/or changed a mobile carrier?

Changing cloud providers should be as easy as that!

Elasticity—deploy new releases when you want them, which can be delayed in the case of mergers, divestitures, etc.

Completeness—UNIT4 did not need to rewrite its legacy products (as multitenancy has been around for a long time); these are mature and complete suites

Forgiveness—in the case of a human error—or intentional sabotage—data can be recovered almost instantly because each customer has its own unique data store

What to Watch For (and Watch Out)

Our intention here is not to outright side with one vendor or another. SAP’s aforementioned initiative is certainly commendable, but the question is whether SAP is trying to make a virtue out of necessity. History teaches us that vendors’ actions are typically motivated by market trends, customer requirements, as well as challenges from smaller vendors that have to differentiate themselves via innovation. Here is a bit more information about why this move makes sense specifically to SAP customers:

Accelerated delivery and adoption of innovation through SAP Cloud offerings.

A hybrid process landscape only SAP can deliver and support seamlessly (and we talk about many customers for whom, due to business complexity, neither a full move to the cloud nor a switch from SAP is an option).

A total cost of ownership (TCO) reduction opportunity in those areas where there is a switch to the cloud.

The maintenance fee reallocation—which is entirely new and was not possible before.

As far as the “cloud versus on-premise” decision goes, it is similar to the subscription versus perpetual license debate—it all depends on what is important to the customer. Some customers may want to own the software like they own a piece of equipment—maybe even capital-expense (capex) it. They want that true ability to walk away from the vendor at any time. Others prefer the subscription (rental) yearly contract model—typically for cash flow reasons. Over time, of course, the subscription will end up costing more in total dollars—but the real return on investment (ROI) analysis hinges on how the customer calculates the cost of money, i.e., the opportunity cost of what it might have otherwise done with the money, etc.

So all those things come into the cloud versus on-premises debate as well—as cloud/software as a service (SaaS) is almost always a subscription model. Vendors such as xTuple and Acumatica even allow perpetual license customers to host in the vendor’s cloud (for just the portion of the monthly fee that's not attributable to the subscription license). Some vendors will even allow on-premise customers to pay in a subscription manner (as if they were cloud customers).

In their marketing collaterals, many cloud vendors talk about not needing as much (or any) information technology (IT) staff as the major advantage of the cloud. And while there's obviously something to that, it could be overstated. Cloud deployment appears to be the more valid approach for smaller companies. But some say that in the future, people will look back on having internal IT like having internal lawyers (outsource, as you only need it sporadically). To which we say, yes, but effective use of technology to improve operations should be a core competency for almost any business that wants to grow and succeed. We don't buy the “outsource everything” school of thought.

In any case, having the freedom of choice to switch to whichever deployment model, including a hybrid one, is important given that customers’ preferences and corporate philosophy might change over time. But prospective customers should be aware of all the pros and cons. Having the ability to handle these deployment changes contractually will be of a great importance, and companies should challenge their vendors in that regard.